A Abstract (Of Title) A summary of the public records relating to the title to a particular piece of land. An attorney or title insurance company reviews an abstract of title to determine whether there is any title defects, which must be cleared before a buyer can purchase clear, marketable, and insurable title.
Acceleration Clause Allows a lender to declare the entire outstanding balance of a loan immediately due and payable should a borrower violate specific loan provisions or default on the loan.
Accrued Interest Interest earned but not yet paid.
Adjustable Rate Mortgage (ARM) A variable or flexible rate mortgage with an interest rate that adjusts periodically according to the financial index it is based upon plus a margin. As a result, the interest rate on your loan and the monthly payment will rise and fall with increases and decreases in overall interest rates. To limit the borrower's risk, the ARM may have a payment or rate cap.
Adjustment Date The date on which the interest rate changes for an adjustable-rate mortgage (ARM).
Adjustment Period The period that elapses between the adjustment dates for an adjustable-rate mortgage (ARM).
Agreement of Sale Contract signed by buyer and seller stating the terms and conditions under which a property will be sold.
Alternative Documentation A method of documenting a loan file that relies on information the borrower is likely to be able to provide instead of waiting on verification sent to third parties for confirmation of statements made in the application.
Amortization
The reduction of a debt by regular, usually
monthly, installments of principal and interest. An amortization schedule is a table
showing the payment and the amounts applied to interest and principal.
Annual
percentage rate (APR)
The cost of credit expressed as a yearly rate,
taking into account interest, points, and other finance charges. Disclosure of the APR is
required by the federal Truth-in-Lending Act and allows borrowers to compare the costs of
different mortgage loans.
Application
An initial statement of personal and financial
information required to apply for a loan.
Application Fee
Fee charged by a lender to cover the initial costs
of processing a loan application. The fee may include the cost of obtaining a property
appraisal, a credit report, and a lock- in fee or other closing cost incurred during the
loan process.
Appraisal
An estimate of a property's value as of a given
date, determined by a qualified professional appraiser. The value may be based on
replacement cost, the sales of comparable properties or the property's ability to produce
income.
Appraisal Fee
A fee charged by a licensed, certified appraiser to
render an opinion of market value as of a specific date.
Appraiser
A person qualified by education, training, and
experience to estimate the value of real property and personal property.
Appreciation
A property's increase in value due to inflation or
economic factors.
Assessment
Charges levied against a property for tax purposes
or to pay for municipality or association improvements such as curbs, sewers, or ground
maintenance.
Assignment
A means of transferring ownership, rights, or
interests in property by one person, the assignor, to another, the assignee. See also C.E.M.
Assumable Mortgage
A mortgage that can be taken over
("assumed") by the buyer when a home is sold.
Assumption
An agreement between a buyer and a seller which may
require lender approval, where the buyer takes over the payments for a mortgage and
accepts the liability. Assuming a loan can be advantageous for a buyer because there are
no closing costs and the loan's interest rate may be lower than current market rates.
Depending on the terms of the mortgage or deed of trust, the lender may raise the interest
rate or require the buyer to qualify for the mortgage.
Assumption Clause
A provision in an assumable mortgage that allows a
buyer to assume responsibility for the mortgage from the seller. The loan does not need to
be paid in full by the original borrower upon sale or transfer of the property.
Assumption Fee
The fee paid to a lender (usually by the purchaser
of real property) resulting from the assumption of an existing mortgage.
Balloon Mortgage
A mortgage that has level monthly payments which
are insufficient to amortize the loan so that a balloon, or lump sum payment is due at the
end of the term. Frequently, balloon mortgages contain an opportunity to refinance when
the balloon payment is due.
Bank Attorney
The party with fiduciary responsibility to the
lender to ensure the terms of the loan are carried out. Other responsibilities include
review of Title and Lien searches, Assignments and other documents required to close the
loan. Not all states require a Bank Attorney. See Escrow Agent
Bankruptcy
A proceeding in a federal court in which a debtor
(who owes more than his/her assets or cash flow) is relieved from the payment of debts.
This can affect the borrower's personal liability or the mortgage debt but not the lien of
a mortgage.
Basis Points
Used to describe mortgage yield, one basis point
equals one 100th of 1% or 0.01%. A mortgage yield increase from 9.50% to 9.75% is an
increase of 25 basis points.
Bearer
The legal owner of a piece of property.
Before-tax Income
Income before tax is deducted.
Beneficiary
The person designated to receive the income from a
trust, estate, or a deed of trust.
Bequest
A gift of personal property by will.
Binder
A preliminary agreement secured by the payment of
an earnest money deposit under which a buyer offers to purchase real estate.
Biweekly Mortgage
A loan requiring payments of principal and interest
at two-week intervals. Each biweekly payment is half the amount of a monthly payment. The
borrower makes the equivalent of 13 monthly payments each year. As a result, this type of
loan amortizes much faster than monthly payment loans.
Blanket Mortgage
A mortgage that covers more than one parcel of real
estate
Bona Fide
In good faith.
Bond
An interest-bearing certificate of debt with a
maturity date. An obligation of a government or business corporation. A real estate bond
is a written obligation usually secured by a mortgage or a deed of trust.
Borrower (Mortgagor)
An individual who applies for and receives funds in
the form of a loan and is obligated to repay the loan in full under the terms of the loan.
. Breach
A violation of any legal obligation.
Bridge Loan
A loan, usually a second mortgage, that is
collateralized by the borrower's present home (that is usually for sale).
Broker
An individual who brings buyers and sellers
together and assists in negotiating contracts for a client.
Building Line or Setback
Distances from the ends and/or sides of the lot
beyond which construction may not extend. The building line may be established by a filed
plat of subdivision, by restrictive covenants in deeds or leases, by building codes, or by
zoning ordinances.
Buy-Down
Where the buyer pays additional discount points in
return for a below market interest rate; or the buyer or seller deposits sufficient funds
with the lender to reduce the rate during the first one to three years of the loan; or
pays closing costs such as the origination fee. During times of high interest rates,
buy-downs may induce buyers to purchase property they may not otherwise have purchased.
Buyer's Market
Market conditions that favor buyers. With more
sellers than buyers in the market, sellers may be forced to make substantial price
concessions.
Call Option
A provision of a note which allows the lender to
require repayment of the loan in full before the end of the loan term. The option may be
exercised due to breach of the terms of the loan or at the discretion of the lender.
Cap
A limit on how much an adjustable rate mortgage's
monthly payment or annual interest rate can increase. A cap is meant to protect the
borrower from large increases and may be a payment cap, an interest cap, a life-of-loan
cap or periodic cap. A payment cap is a limit on the monthly payment. An interest cap is a
limit on the amount of the interest rate. A life-of-loan cap restricts the amount the
interest rate can increase over the entire term of the loan. A periodic cap limits the
amount the interest rate can change each interest rate adjustment date. For example,
if your per-period cap is 1% and your current rate is 7%, then your newly adjusted rate
must fall between 6% and 8% regardless of actual changes in the index.
Cash Out
Any cash received when you get a new loan that is
larger than the remaining balance of your current mortgage, based upon the equity you have
already built up in the house. The cash out amount is calculated by subtracting the sum of
the old loan and fees from the new mortgage loan. For example, if your existing loan is
$100,000, you might refinance it with a loan of $120,000. After you pay off your current
loan ($100,000) and any loan-origination costs for the new loan (for example $2,000 in
points), you would be left with $18,000 cash out. Cash-out loans may not be available for
all types of property.
Cashier's Check (or Bank Check)
A check whose payment is guaranteed because it was
paid for in advance and is drawn on the bank's account instead of the customer's.
Ceiling
The maximum allowable interest rate of an
adjustable rate mortgage.
C.E.M.
Or Consolidation, Extension, and Modification of
existing note(s) into one document: the CEM Agreement. In New York refinanced and purchase
money mortgages are often documented in this manner to reduce the recording tax. Allowed
only on properties located in New York State. (See Assignment)
Certificate of Eligibility
Document issued by the Veterans Administration to
qualified veterans which verifies a veteran's eligibility for a VA guaranteed loan.
Obtainable through local VA office by submitting form DD-214 (Separation Paper) and VA
form 1880 (request for Certificate of Eligibility).
Certificate of Occupancy (CO)
Written authorization given by a local municipality
that allows a newly completed or substantially completed structure to be inhabited; not to
be confused with "Notice of Completion."
Certificate
of Reasonable Value (CRV)
A Veteran's Administration appraisal that
establishes the maximum VA mortgage loan amount for a specified property.
Certificate of Title
Written opinion of the status of title to a
property, given by an attorney or title company. This certificate does not offer the
protection given by title insurance.
Certificate of Veteran Status
FHA form filled out by the VA to establish a
borrower's eligibility for a FHA Vet loan. Obtainable through local VA office by
submitting form DD 214 (Separation Paper) with form 26-8261a (request for certificate of
veteran status).
Chain of Title
The chronological order of conveyance of a property
from the original owner to the present owner.
Closed-end Mortgage
A mortgage principal amount that is fixed and
cannot be increased during the life of the loan.
Closing (or Settlement)
The settlement or closing is the conclusion of your
real estate transaction. It includes the delivery of your security instrument, signing of
your legal documents and the disbursement of the funds necessary to the sale of your home
or loan transaction (refinance).
Closing Costs
Costs payable by either seller or buyer at the time
of settlement when the purchase of a property is finalized or by borrower when a loan is
refinanced. They include expenses such as points, taxes, title insurance, mortgage
insurance and attorneys' fees. You will receive more specific information about types and
amounts of closing costs applicable to your transaction and the state where your property
is located when you apply for a loan.
Closing Statement
Also referred to as the HUD1. The final statement
of costs incurred to close on a loan or to purchase a home.
Cloud
A claim to the title of a property that, if valid,
would prevent a purchaser from obtaining a clear title.
Co-borrower
One who is individually and jointly obligated to
repay a mortgage loan and may or may not share ownership of the property with one or more
borrowers. See also: Co-signer
Collateral
An asset (such as a car or a home) that guarantees
the repayment of a loan. The borrower risks losing the asset if the loan is not repaid
according to the terms of the loan contract.
Collection
The efforts used to bring a delinquent mortgage
current and to file the necessary notices to proceed with foreclosure when necessary.
Co-maker
A person who signs a promissory note along with the
borrower. A co-maker's signature guarantees that the loan will be repaid, because the
borrower and the co-maker are equally responsible for the repayment. See endorser.
Commission
The fee charged by a broker or agent for
negotiating a real estate or loan transaction. A commission is generally a percentage of
the price of the property or loan.
Commitment Fee
A fee charged when an agreement is reached between
a lender and a borrower for a loan on specific terms and conditions. Rate and points may
be locked-in or may be "floating".
Commitment Letter
A formal offer by a lender stating the terms under
which it agrees to lend money to a homebuyer. Also known as a "loan commitment."
Common Elements/Areas
Those portions of a building, land, and amenities
of a PUD, condo or co-op that are used by all unit owners, who share in the common
expenses of their operation and maintenance. Common areas usually include swimming pools,
tennis courts, or other recreational facilities, as well as common corridors of buildings,
parking lots, etc.
Comparable
An abbreviation for "comparable
properties"; used for comparative purposes in the appraisal process. Comparables are
properties like the property under consideration; they have reasonably the same size,
location, and amenities and have recently been sold. Comparables help the appraiser
determine the approximate fair market value of the subject property.
Condominium
A form of ownership where the dwelling units are
individually owned and homeowners share ownership of common areas such as the grounds, the
parking facilities and the tennis courts.
Condominium Conversion
Changing the ownership of an existing building
(usually a rental project) to the condominium form of ownership.
Conforming Loan
A loan that conforms to Federal National Mortgage
Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC) guidelines. The
maximum conforming loan amount is $227,150 for a one-unit property.
Construction Loan
A short-term, interim loan for financing the cost
of construction. The lender makes payments to the builder at periodic intervals as the
work progresses. Upon completion of the construction, the some lenders will convert the
loan to permanent financing while other lenders will require the borrower to pay the
construction loan in full. In this instance the borrower usually can refinance the
property.
Consumer Handbook on Adjustable Rate
Mortgages
A disclosure required by the federal government to
be given to any borrower applying for an adjustable rate mortgage (ARM).
Consumer Reporting Agency (or bureau)
An organization that prepares reports that are used
by lenders to determine a potential borrower's credit history. The agency obtains data for
these reports from a credit repository as well as from other sources.
Contingency
A condition which must be satisfied before a
contract is legally binding.
Contract of Sale
The agreement between the buyer and seller on the
purchase price, terms, and conditions of a sale.
Conventional Loan
A mortgage loan that is not insured, guaranteed or
funded by the Veterans Administration (VA), the Federal Housing Administration (FHA) or
Rural Economic Community Development (RECD) (formerly Farmers Home Administration).
Conversion Clause
A provision in some ARMs that allows you to change
an ARM to a fixed-rate loan, usually after the first adjustment period.
Conveyance
The document used to effect a transfer, such as a
deed, or mortgage.
Co-operative
A co-op is a form of ownership in which a
corporation or business entity holds title to a property and grants the occupancy rights
to particular apartments or units to shareholders by means leases or similar arrangements.
A loan granted for a co-op is collateralized by an assignment of the proprietary lease and
a pledge of the shares of stock allocated to the unit.
Corporate Relocation
Arrangements under which an employer moves an
employee to another area as part of the employer's normal course of business or under
which it transfers a substantial part or all of its operations and employees to another
area because it is relocating its headquarters or expanding its office capacity.
Co-signer
A person who agrees to assume a debt obligation if
the principal borrower defaults on the payments. A co-signer is not on the security
instrument and is only responsible for the debt. See also: Co-borrower
Cost of Funds Index (COFI)
An index of the weighted-average interest rate paid
by savings institutions for sources of funds, usually by members of the 11th Federal Home
Loan Bank District.
Covenant
A clause in a mortgage that obligates or restricts
the borrower and that, if violated, can result in foreclosure.
Covenants
Rules and restrictions governing the use of
property.
Credit Bureau Company
A company that is engaged in the preparation of
reports that are used by credit grantors to determine the credit and public records
history of an individual. The agency obtains data for these reports from national
repositories and other sources (e.g., TRW, TransUnion, Equifax, and public record data).
Credit Bureau Repository
An organization that compiles credit history data
directly from lenders and creditors to build in-file credit reports for individuals; the
main repositories are TRW, TransUnion, & Equifax.
Credit Report
A report detailing the credit history of a
prospective borrower that's used to help determine borrower credit worthiness.
Debt-to-Income Ratio (D/I)
The ratio of the borrower's total monthly
obligations, including housing expenses and recurring debts, to monthly income. It is used
to determine the borrower's capacity to repay the mortgage and all other debts.
Deed
Legal document by which title to real property is
transferred from one owner to another. The deed contains a description of the property,
and is signed, witnessed, and delivered to the buyer at closing.
Deed-in-lieu
A deed given by a mortgagor to the mortgagee to
satisfy a debt and avoid foreclosure.
Deed of Trust
A document, used in many states in place of a
mortgage, whereby a trustee pending repayment of the loan holds title to the property.
Default
Failure to meet legal obligations in a contract,
including failure to make payments on a loan.
Delinquency
Failure to make payments as agreed in the loan
agreement.
Department of Housing and Urban Development
(HUD)
The U.S. government agency that administers FHA,
GNMA and other housing programs.
Deposit
A sum of money given to bind the sale of real
estate, or a sum of money given to ensure payment or an advance of funds in the processing
of a loan.
Depreciation
A decline in the value of property; the opposite of
appreciation.
Discount
The amount by which the sales price of a note (or
financial instrument) is below or less than its face value. The purpose of a discount is
to adjust the yield upward either in lieu of interest or in addition to interest. Discount
points are payable to the lender by the borrower or seller to increase the lender's
effective yield. One point is equal to 1% of the loan.
Discount Points (or Points)
Points are an up-front fee paid to the lender at
the time that you get your loan. Each point equals one percent of your total loan amount.
Points and interest rates are inherently connected: in general, the more points you pay,
the lower the interest rate you get.
Documentary Stamps
A State tax, in the forms of stamps, required on
deeds and mortgages when real estate title passes from one owner to another. The amount of
stamps required varies with each State.
Down Payment
The amount of your home's purchase price you need
to supply up front in cash to get your loan. For conventional loans, you should strive for
a down payment that's at least 20% of your home's value, since lenders generally do not
require private mortgage insurance with a down payment of at least 20% of your home's
purchase price. (Note, however, that FHA and VA loans have different policies regarding
insurance.)
Due-on-Sale Clause
Provision in a mortgage or deed of trust allowing
the lender to demand immediate payment of the loan balance upon sale of the property.
Earnest Money
Deposit made by a buyer towards the down payment in
evidence of good faith when the purchase agreement is signed.
Easement
A right of way giving persons other than the owner
access to or over a property.
Economic Obsolescence
The loss of value due to changes outside the
particular property affected (e.g., high power lines, busy streets, proximity to an
airport or any other structure perceived to be less than desirable); also called economic
depreciation.
Effective Age
An appraiser's estimate of the physical condition
of a building. The actual age of a building may be shorter or longer than its effective
age.
Effective Rate
The effective rate is a consumer-oriented rate that
takes into account the projected amount of time you tell us you will actually have the
loan, as well as the specific costs, fees, and potential rate changes associated with it.
The fees and costs are distributed over the time you plan to be in the house, allowing you
to do an apples-to-apples comparison of a variety of loan types. The effective rate is not
the APR. It is similar in that it factors in interest, mortgage insurance, and other fees
(including points); however, the APR assumes that you keep your loan for the entire term,
while the effective rate takes into account how long you tell us you plan to be in your
house.
Encroachment
An obstruction, building, or part of a building
that intrudes beyond a legal boundary onto neighboring private or public land, or a
building extending beyond the building line.
Encumbrance
Anything that affects or limits the fee simple
title to a property, such as mortgages, leases, easements, or restrictions.
Environmental Hazard
Natural or man-made forces that may be hazardous to
the health or safety of the homeowner. Examples include hazardous wastes, toxic
substances, radon gas and materials containing asbestos. These types of hazards can
adversely affect the value and marketability of the property.
Equal Credit Opportunity Act (ECOA)
Federal law requiring creditors to make credit
equally available without discrimination based on race, color, religion, national origin,
age, sex, marital status or receipt of income from public assistance programs.
Equity
The difference between the current market value of
a property and the total debt obligations against the property. On a new mortgage loan,
the down payment represents the equity in the property.
Escrow
A transaction in which a third party acts as the
agent for seller and buyer, or for borrower and lender, in handling legal documents and
disbursement of funds.
Escrow Account
An account held by the lender to which the borrower
pays monthly installments, collected as part of the monthly mortgage payment, for annual
expenses such as taxes and insurance. The lender disburses escrow account funds on behalf
of the borrower when they become due. Also known as Impound Account.
Escrow Agent
A person with fiduciary responsibility to the buyer
and seller, or the borrower and lender, to ensure that the terms of the purchase/sale or
loan are carried out. See Bank Attorney
Escrow Collections
Funds collected by the servicer and set-aside in an
escrow account to pay the borrower's property taxes, mortgage insurance, and hazard
insurance.
Escrow Disbursements
The use of escrow funds to pay real estate taxes,
hazard insurance, mortgage insurance, and other property expenses as they become due.
Escrow Payment
The portion of a mortgagor's monthly payment that
is held by the servicer to pay for taxes, hazard insurance, mortgage insurance, lease
payments, and other items as they become due. Known as "impounds" or
"reserves" in some states.
Estate
The ownership interest of an individual in real
property. The sum total of all the real property and personal property owned by an
individual at time of death.
Eviction
The lawful expulsion of an occupant from real
property.
Examination of Title
The report on the title of a property from the
public records or an abstract of the title.
Fair Credit Reporting Act
A consumer protection law that regulates the
disclosure of consumer credit reports by consumer/credit reporting agencies and
establishes procedures for correcting mistakes on one's credit record.
Fair Market Value
The price established in a free market between a
buyer and seller in an arms-length transaction where neither one is compelled to buy or
sell. In an appraisal, this is the final value derived after examining the Sales
Comparison, Cost, and if applicable, Income approaches; sometimes referred to as
"Market Value."
FAIR Plan
The Fair Access to Insurance Requirement Plan is a
program established within a state to provide access to insurance for property owners in
areas that are generally not insurable by most insurers; examples include specific beach
and windstorm areas.
Fannie Mae
A common nickname for the Federal National Mortgage
Association.
Fannie Mae's Community HomeBuyer's Program
An income-based community lending model, under
which mortgage insurers and Fannie Mae offer flexible underwriting guidelines to increase
a low- or moderate- income family's buying power and to decrease the total amount of cash
needed to purchase a home. Borrowers who participate in this model are required to attend
pre-purchase homebuyer education sessions.
Farmer's
Home Administration (FmHA)
The government agency that guarantees mortgages
secured by residential properties located in rural areas, concentrating on borrowers with
income less than HUD's local median income for the area in which they reside. FmHA is now
known as Rural Economic and Community Development.
Federal Deposit Insurance Corporation (FDIC)
Independent deposit insurance agency created by
Congress to maintain stability and public confidence in the nation's banking system.
Federal Home Loan Mortgage Corporation
(FHLMC, or Freddie Mac)
This agency buys loans that are underwritten to its
specific guidelines. These guidelines are an industry standard for residential
conventional lending.
Federal Housing Administration (FHA)
An agency within the Department of Housing and
Urban Development that sets standards for underwriting and insures residential mortgage
loans made by private lenders. One of FHA's objectives is to ensure affordable mortgages
to those with low or moderate income. FHA loans may be high loan-to-value, and they are
limited by loan amount. FHA mortgage insurance requires a fee of up to 3.8 percent of the
loan amount to be paid either at closing or added to each monthly payment, as well as an
annual fee of 0.5 percent of the loan amount added to each monthly payment. Federal National Mortgage Association (FNMA, or
Fannie Mae)
A congressionally chartered, shareholder-owned
company that is the nation's largest supplier of home mortgage funds. This agency buys
loans that are underwritten to its specific guidelines. These guidelines are an industry
standard for residential conventional lending.
Fee simple
The maximum form of ownership, with the right to
occupy a property and sell it to a buyer at any time. Upon the death of the owner, the
property goes to the owner's designated heirs. Also known as fee simple absolute.
FHA
See Federal Housing Administration.
FHA Loans
Fixed- or adjustable-rate loans insured by the U.S.
Department of Housing and Urban Development. FHA loans are designed to make housing more
affordable, particularly for first-time homebuyers. FHA loans typically permit borrowers
to buy a home with a lower down payment than conventional loans. With FHA insurance,
eligible buyers can purchase a home with a down payment as little as 3% of the appraised
value or the purchase price, whichever is lower. FHA borrowers typically are required to
participate in a face-to-face meeting with their lender or a government approved mortgage
counselor prior to closing on a new mortgage loan. The current FHA loan limit is $169,050;
however, FHA loan amount limits may vary by county.
Fifteen Year Mortgage
A loan with a term of 15 years. Although the
monthly payment on a 15-year mortgage is higher than that of a 30-year mortgage, the
amount of interest paid over the life of the loan is substantially less.
Fidelity Bond
An insurance bond that is obtained to protect
against financial loss from dishonest acts of persons entrusted with authority to manage
funds.
First Mortgage
A mortgage which is in first lien position, taking
priority over all other liens. In the case of a foreclosure, the first mortgage will be
repaid before any other mortgages.
Fixed Rate
An interest rate which is fixed for the term of the
loan.
Fixed Rate Loans
Fixed rate loans have interest rates that do not
change over the life of the loan. As a result, monthly payments for principal and interest
are also fixed for the life of the loan. Fixed rate loans typically have 15-year or
30-year terms. With a fixed rate loan, you will have predictable monthly mortgage payments
for as long as you have the loan.
Flood Insurance
Insurance that compensates for physical damage to a
property by flood. Typically not covered under standard hazard insurance.
Forbearance
The act by the lender of refraining from taking
legal action on a mortgage loan that is delinquent.
Foreclosure
The legal process by which a borrower in default
under a mortgage or deed of trust, loses his/her interest in the mortgaged property; this
process usually involves a forced sale of the property at public auction with the proceeds
of the sale being applied to the mortgage debt.
Freddie Mac
A common nickname for the Federal Home Loan
Mortgage Corporation.
General Warranty Deed
A deed which conveys not only all the grantor's
interests in and title to the property to the grantee, but also warrants that if the title
is defective or has a "cloud" on it (such as mortgage claims, tax liens, title
claims, judgments, or mechanic's liens against it) the grantee may hold the grantor
liable.
Gift funds
Funds donated to the borrower from certain eligible
sources to assist the borrower in meeting closing costs. Generally, eligible sources are a
relative, church, municipality, or nonprofit organization.
Ginnie Mae
Nickname for Government National Mortgage
Association (GNMA).
Government National Mortgage Association
(GNMA or Ginnie Mae)
A government organization that participates in the
secondary market, buying, selling and guaranteeing FHA and VA loans.
Good Faith Estimate
Written estimate of the settlement costs the
borrower will likely have to pay at closing. Under the Real Estate Settlement Procedures
Act (RESPA), the lender is required to provide this disclosure to the borrower within
three days of receiving a loan application.
Grace Period
Period of time during which a loan payment may be
made after its due date without incurring a late penalty. The grace period is specified as
part of the terms of the loan in the Note.
Graduated Payment Mortgage (GPM)
A mortgage that has initial monthly payments set at
an amount lower than that required for full amortization of the debt. The payments are
then increased by a specified percentage each year during the graduated payment period. At
the end of the period, payments are in an amount that will fully amortize the mortgage.
Grantee
That party in the deed who is the buyer or
recipient.
Grantor
That party in the deed who is the seller or giver.
Hazard Insurance
A form of insurance that protects the insured
property against physical damage such as fires, tornadoes, earthquakes, etc. Mortgage
lenders often require a borrower to maintain an amount of hazard insurance on the property
that is equal to the amount of the mortgage loan.
Home Equity Line of Credit (HELOC)
A real estate loan, usually in a subordinate
position, that allows a borrower to borrow against equity in real estate owned with
specific limitations. This is an open end loan that permits the borrower to repay and
re-borrow the funds available.
Home Equity Loan
A mortgage on the borrower's principal residence,
usually for the purpose of making home improvements or debt consolidation. This is a
closed-end loan repayable in accordance with a fixed schedule.
Home Owners Association (HOA)
A nonprofit association, whose directors and
officers are elected by the unit owners of a condominium or PUD project; primary
responsibilities are to manage the common areas, expenses and services of the project.
Homeowners Insurance
A form of insurance that protects the insured
property against loss from theft, liability and most common disasters. Also referred to as
hazard insurance.
Housing
and Urban Development (HUD)
The U.S. government agency that administers FHA,
GNMA and other housing programs.
Housing Debt-to-Income Ratio
The sum of all monthly housing mortgage expenses
such as principal, interest, taxes and insurance (PITI), Homeowners dues, private mortgage
insurance and any special assessments as a percentage of gross qualifying income.
Impound Account
An account held by the lender to which the borrower
pays monthly installments, collected as part of the monthly mortgage payment, for annual
expenses such as taxes and insurance. The lender disburses impound account funds on behalf
of the borrower when they become due. (Also known as Escrow Account.)
Index
A published interest rate compiled from other
indicators such as U.S. Treasury bills or the monthly average interest rate on loans
closed by savings and loan organizations. Mortgage lenders use the index figure to
establish rates on adjustable rate mortgages (ARMs).
Initial Rate
The rate charged during the first interval of an
ARM loan.
Individual Retirement Account (IRA)
An account that can be established by individuals
who meet IRS qualifications to build retirement funds, deferring the tax liability until
funds are withdrawn. Under permitted circumstances, they may deduct their annual
contributions from their taxable income.
Installment Debt
Borrowed money that is repaid in successive
payments, usually at regular intervals.
Interest
Charge paid for borrowing money, calculated as a
percentage of the remaining balance of the amount borrowed.
Interest Rate
The simple interest rate, stated as a percentage,
charged by a lender on the principal amount of borrowed money. See also: Annual
Percentage Rate
Interest Rate Cap
Consumer safeguards that limit the amount the
interest rate on an ARM loan can change in an adjustment interval and/or over the life of
the loan. For example, if your per-period cap is 1% and your current rate is 7%, then your
newly adjusted rate must fall between 6% and 8% regardless of actual changes in the index.
Interest Only Loan
A loan with periodic payments of interest only. The
principal amount is due in lump sum(s) upon maturity or intervals.
Joint Liability
Liability shared among two or more people, each of
whom is liable for the full debt.
Joint Tenancy
A form of ownership of property giving each person
equal interest in the property, including rights of survivorship.
Jumbo Loan
A loan that is for a larger dollar amount than the
limits set by the Federal National Mortgage Association (FNMA) or Federal Home Loan
Mortgage Corporation (FHLMC) guidelines.
Junior Mortgage
A mortgage subordinate to the claim of a prior lien
or mortgage. In the case of a foreclosure, a senior mortgage or lien will be paid first.
Keogh
A retirement plan for self-employed individuals.
Similar to an IRA, contributions may be deductible and the tax liability is deferred until
the funds are withdrawn; sometimes known as HR 10 plans.
Late Charge
Penalty paid by a borrower when a payment is made
after the due date.
Lease Purchase Agreement
An agreement whereby the buyer signs a property
lease with the intention of purchasing it at a specified price on specified date
thereafter.
Lender
The bank, mortgage company, or mortgage broker
offering the loan.
LIBOR (London Interbank Offered Rate)
The interest rate charged among banks in the
foreign market for short term loans to one another. A common index for ARM loans.
Lien
A claim against a property for the payment of a
debt. A mortgage is a lien; other types of liens a property might have include a tax lien
for overdue taxes, or a court judgment lien, or a mechanics lien for unpaid debt to a
contractor.
Lien Search
A search on the seller and the co-op corporation to
determine if there are any liens, loans or judgments which may have an effect on
your ownership of the unit.
Lifetime cap
A provision of an ARM that limits the highest rate
that can occur over the life of the loan.
Liquidity
Cash or cash equivalents that a borrower has
accumulated or the ability to readily convert other assets or investments into cash;
a.k.a. cash reserves.
Loan Application
An initial statement of personal and financial
information required to apply for a loan.
Loan Application Fee
Fee charged by a lender to cover the initial costs
of processing a loan application. The fee may include the cost of obtaining a property
appraisal, a credit report, and a lock-in fee or other closing costs incurred during the
process or the fee may be in addition to these charges.
Loan Origination Fee
Fee charged by a lender to cover administrative
costs of processing a loan.
Loan-to-Value Ratio (LTV)
The relationship expressed as a percentage, between
the amount of the proposed loan and a property's appraised value or purchase price. For
example, a $75,000 loan on a property appraised at $100,000 is a 75% loan-to-value.
Lock or Lock-In
A lender's guarantee of an interest rate for a set
period of time. The time period is usually that between loan application approval and loan
closing. The lock-in protects you against rate increases during that time. See Rate Lock
Policy
Margin
The amount a lender adds to the index of an
adjustable rate mortgage to establish an interest rate. For example, a margin of 1.50
added to a 7 percent index establishes an interest rate of 8.50 percent. The margin
remains the same throughout the loan.
Marketable Title
A title that is free and clear of objectionable
liens, clouds, or other title defects. A title which enables an owner to sell his property
freely to others and which others will accept without objection.
Market Value
A price or price range generally acknowledged to be
the accepted amount that a buyer would be willing to pay and a seller would be willing to
accept for a property at a given time. Properties often sell above or below market value
due to special circumstances in the market or on the part of a buyer or seller.
Mortgage
A legal instrument in which a lien on real property
is granted as security for the repayment of a loan. In some states, a deed of trust is
used rather than a mortgage.
Mortgage Banker
An individual or company that originates and/or
services mortgage loans.
Mortgage Broker
An intermediary between a borrower and a lender. A
broker's expertise is to help borrowers find financing that they might not otherwise find
themselves.
Mortgage Disability Insurance
A disability insurance policy which will pay the
monthly mortgage payment in the event of a covered disability of an insured borrower for a
specified period of time.
Mortgage Commitment
A written notice from the bank or other lending
institution saying it will advance mortgage funds in a specified amount to enable a buyer
to purchase a house.
Mortgage Insurance
Insurance to protect the lender in case you default
on your loan. With conventional loans, mortgage insurance is generally not required if you
make a down payment of at least 20% of the home's purchase price. (Note, however, that FHA
and VA loans have different insurance guidelines.)
Mortgage Loan
A loan for which real estate serves as collateral
to provide for repayment in case of default.
Mortgage Note
Legal document obligating a borrower to repay a
loan at a stated interest rate during a specified period of time. The agreement is secured
by a mortgage or deed of trust or other security instrument.
Mortgage (Open-End)
A mortgage with a provision that permits borrowing
additional money in the future without refinancing the loan or paying additional financing
charges. Open-end provisions often limit such borrowing to no more than would raise the
balance to the original loan figure.
Negative Amortization
A situation in which a borrower is paying less
interest than what is actually being charged for a mortgage loan. The unpaid interest is
added to the loan's principal. The borrower may end up owing more than the original amount
of the mortgage.
Net Rental Income
The remaining income generated by an investment
property after deducting all mortgage related expenses, including HOA fees (if applicable)
and operating expenses from the gross rental income.
Net Worth
The amount by which an individual's assets (or
assets of a business) exceed total liabilities.
Non-assumption Clause
In a mortgage contract, a statement that disallows
a new buyer to assume a mortgage payment without the approval of the lender.
Non-conforming Loan
A loan that does not conform to Federal National
Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC) guidelines
either because the loan amount is too high or FNMA/FHLMC underwriting or other criteria
are not met. Jumbo loans are non-conforming.
Non-permanent Resident Alien
A non-U.S. citizen who resides in the United States
on a temporary basis on a
government-issued work visa.
Non-resident Alien
A non-U.S. citizen who resides outside of the
United States.
Note
Legal document obligating a borrower to repay a
loan at a stated interest rate during a specified period of time. The agreement is secured
by a mortgage or deed of trust or other security instrument.
Notice of Default
Written notice to a borrower that default has
occurred and that legal action may be taken.
Payment Cap
Consumer safeguards that limit the amount monthly
payments on an adjustable-rate mortgage may change. Since they do not limit the amount of
interest the lender is earning, they may cause negative amortization.
Payment to Income (P/I) ratio
The ratio of the borrower's total housing payment
(principal, interest, taxes, insurance, HOA fees, special assessments, and subordinate
financing) that is used to measure the borrower's capacity to manage the housing expense;
also known as "housing debt-to-income ratio."
Per Diem Interest
Interest calculated per day. (Depending on the day
of the month on which closing takes place, you will have to pay interest from the date of
closing to the end of the month. Your first mortgage payment will probably be due the
first day o f the following month.)
Permanent buy-down
A permanent reduction to the interest rate for the
life of the loan. The funds for the buy-down may come from the borrower, lender, seller or
a third party.
PITI
Abbreviation for Principal, Interest, Taxes and
Insurance, the components of a monthly mortgage payment.
Planned Unit Development (PUD)
A real estate project in which each unit owner has
title to a residential lot and building and a non-exclusive easement on the common areas
of the project.
Points
Charges levied by the lender based on the loan
amount. Each point is one percent of the loan amount; for example, two points of a
$100,000 mortgage is $2,000. Discount points are used to buy down the interest rate.
Points can also include a loan origination fee, which is usually one point.
Power of Attorney
Legal document authorizing one person to act on
behalf of another.
Prepaid Interest
Interest that is paid in advance of when it is due.
Typically charged to a borrower at closing to cover interest on the loan between the
closing date and the first payment date.
Prepaid Items
Items that generally must be paid for at the time
of closing and are generally recurring charges. Prepaid items may include the following:
first year premiums for hazard, flood and mortgage insurance, as applicable to the
transaction; prorated interest; any special assessments which must be prepaid (i.e.,
water/sewer connection, etc.); escrow accounts for any of the above.
Prepayment
The borrower's ability to make full or partial
payments on a loan's principal before they are due. Paying a mortgage in full or in part
before it is due may incur a penalty if so specified in the mortgage's prepayment clause.
Pre-qualification
Tentative establishment of a borrower's
qualification for a mortgage loan amount of a specific amount or ability to make monthly
payments at a certain level, based solely on debt-to-income ratios. Pre-qualification is
an estimate only and is subject to debt and income verification, credit history, property
appraisal and other factors.
Prime rate
The interest rate designated by a lender as its
prime rate and which serves as a basis for the interest rate charged to certain customers.
Principal
The amount of the mortgage loan, not counting
interest.
Private Mortgage Insurance (PMI)
Insurance to protect the lender in case you default
on your loan. With conventional loans, mortgage insurance is generally not required if you
make a down payment of at least 20% of the home's purchase price. (Note, however, that FHA
and VA loans have different insurance guidelines.)
Prorate
To proportionally divide amounts owed by the buyer
and the seller at closing.
Purchase Agreement
Contract signed by buyer and seller stating the
terms and conditions under which a property will be sold.
Qualification
As determined by a lender, the ability of the
borrower to repay a mortgage loan based on the borrower's credit history, employment
history, assets, debts, income and other factors.
Qualifying Ratios
The percentage of payment to income (P/I) and
debt-to-income (D/I) that is used to measure the borrower's capacity to repay the mortgage
debt.
Quitclaim Deed
A deed that transfers whatever interest the maker
of the deed may have in the particular parcel of land. A quitclaim deed is often given to
clear the title when the grantor's interest in a property is questionable. By accepting
such a deed the buyer assumes all the risks. Such a deed makes no warranties as to the
title, but simply transfers to the buyer whatever interest the grantor has.
Real Estate Settlement Procedures Act (RESPA)
A federal law that requires lenders to provide
mortgage loan borrowers with information of known or estimated settlement costs.
Real Property
Land and any improvements permanently affixed to
it, such as buildings.
Realtor
A real estate agent or broker who is a member of the National Association
of Realtors.
Rebate
Monies paid from the lender/broker towards the borrowers non-recurring
closing costs which includes appraisals, application fees, underwriting fees, processing
fees, and title.
Recognition Agreement
An agreement by the co-op that recognizes specific
rights of lenders who finance the acquisition of interests in a co-op project.
Reconveyance
The transfer of property back to the owner when a
mortgage loan is fully repaid.
Recording
The act of entering documents concerning title to a
property into the public records.
Recording Fee
Money paid to an agent for entering the sale of a
property into the public records.
Refinance
Retirement of an existing debt from the proceeds of
a new loan, using the same collateral as security.
Restrictive Covenants
Private restrictions limiting the use of real
property. Restrictive covenants are created by deed and may "run with the land,"
binding all subsequent purchasers of the land, or may be "personal" and binding
only between the original seller and buyer. The language of the covenant, the intent of
the parties, and the law in the State where the land is situated govern the determination
whether a covenant runs with the land or is personal. Restrictive covenants that run with
the land a re encumbrances and may affect the value and marketability of title.
Restrictive covenants may limit the density of buildings per acre, regulate size, style or
price range of buildings to be erected, or prevent particular businesses from operating or
minority groups from owning or occupying homes in a given area. (This latter
discriminatory covenant is unconstitutional and has been declared unenforceable by the US
Supreme Court.)
Rental Income
Income generated by renting property to a tenant.
Reverse Annuity Mortgage (RAM)
A Mortgage in which the borrower receives periodic
payments from the lender who uses the borrower's equity in the home as security.
Reserves
Sometimes referred to as "cash reserves"
or "post closing reserves"; this is the amount of liquid assets the borrower has
remaining after completion of the mortgage loan transaction and payment of any other
debt(s) that had to be satisfied in order for the borrower to qualify for the loan. See: Liquidity
Resident Alien
A non-U.S. citizen who is granted most of the
rights of a U.S. citizen, including permanent residency in the United States. Resident
Alien status is usually evidenced by a "Green Card."
Residential Mortgage Credit Report
This report is prepared only at the request of your
mortgage lender. This report utilizes information from at least two of the three national
credit bureaus and information provided on your loan application. The report contains
verified and updated credit history, employment and residence information, as well as
public record information.
Revolving Debt
A debt that does not have a fixed payment, although
repayment is usually a percentage of the outstanding balance and made at regular
intervals; most common are credit cards issued by banks or department stores.
Right to Rescission
Under the provisions of the Truth-in-Lending Act,
the borrower's right, on certain kinds of loans, to cancel the loan within three days of
signing a mortgage.
Sales Agreement
Contract signed by buyer and seller stating the
terms and conditions under which a property will be sold.
Second Mortgage
A loan that is junior to a primary or first
mortgage and often has a higher interest rate and a shorter term.
Second/Vacation Home
A second home/vacation home that is occupied by the
borrower for some portion of the year for his/her exclusive use and enjoyment but which is
suitable for year round occupancy. It cannot be subject to a mandatory rental pool and the
borrower does not intend to use the property for income producing purposes
Secondary Market
A market in which investors like GNMA, FHLMC, FNMA
and private organizations buy large numbers of mortgages from the primary lenders and
either hold them in a portfolio or package them for sale to others. By selling loans in
the secondary market, lenders obtain the funds needed to make new loans.
Self-employed Borrower
A borrower whose income is derived from a business
in which he/she has an ownership interest of 25% or more.
Servicing
The responsibility of collecting monthly mortgage
payments and properly crediting them to the principal, interest, taxes and insurance, as
well as keeping the borrower informed of any changes in the status of the loan.
Settlement (or Closing)
The settlement or closing is the conclusion of your
real estate transaction. It includes the delivery of your security instrument, signing of
your legal documents and the disbursement of the funds necessary to the sale of your home
or loan transaction (refinance).
Settlement Costs
Also known as closing costs, these costs are for
services that must be performed before your loan can be initiated. Examples include title
fees, recording fees, appraisal fee, credit report fee, pest inspection, attorney's fees,
taxes, and surveying fees.
Shared Appreciation Mortgage (SAM)
A loan in which a lender offers a below market
interest rate in exchange for a portion of the future appreciation of the property.
Special Assessments
A special tax imposed on property, individual lots
or all property in the immediate area, for road construction, sidewalks, sewers,
streetlights, etc.
Special Lien
A lien that binds a specified piece of property,
unlike a general lien, which is levied against all one's assets. It creates a right to
retain something of value belonging to another person as compensation for labor, material,
or money expended in that person's behalf. In some localities it is called
"particular" lien or "specific" lien. See Lien
Special Warranty Deed
A deed in which the grantor conveys title to the
grantee and agrees to protect the grantee against title defects or claims asserted by the
grantor and those persons whose right to assert a claim against the title arose during the
period the grantor held title to the property. In a special warranty deed the grantor
guarantees to the grantee that he has done nothing during the time he held title to the
property which has, or which might in the future, impair the grantee's title.
Subdivision
An area of land that is platted and sub-divided
into individual lots.
Survey
A physical measurement of property done by a
registered professional showing the boundaries, dimensions and location of any buildings
as well as easements, rights of way, roads, etc.
Sweat Equity
Value added to a property in the form of labor or
services of the owner rather than cash.
Tax
As applied to real estate, an enforced charge
imposed on persons, property or income, to be used to support the State. The governing
body in turn utilizes the funds in the best interest of the general public.
Tax Impound
Money paid to and held by a lender for annual tax
payments.
Tax Lien
Claim against a property for unpaid taxes.
Tax Sale
Public sale of property by a government authority
as a result of non-payment of taxes.
Temporary Buy-downs
A loan on which the interest rate has been
"bought down" for a temporary period of time at the beginning of the loan by
escrowing funds at the time of closing, which will be applied to the total monthly
mortgage payment as each becomes due.
Tenants-in-common
An undivided interest in property taken by two or
more persons. The interest need not be equal. Upon death of one or more persons, there is
no right of survivorship.
Term
The period of time between the beginning loan date
on the legal documents and the date the entire balance of the loan is due.
Title
A formal document establishing ownership of
property.
Title Company
A company that insures title to property.
Title Search
Examination of municipal records to ensure that the
seller is the legal owner of a property and that there are no liens or other claims
against the property.
Total debt ratio
Townhouse
An architectural type of construction; a row house
on a small lot that has exterior limits common to other similar units; title to the unit
and its lot is vested in the individual owner with a fractional interest in common areas,
if any.
Transfer Tax
Tax paid when title passes from one owner to
another.
Trustee
A party who is given legal responsibility to hold
property in the best interest of or "for the benefit of" another. The trustee is
one placed in a position of responsibility for another, a responsibility enforceable in a
court of law.
Truth-in-lending
The Truth-in-Lending Act requires lenders to
disclose the cost of credit and other loan terms to consumers, and also provides a 3 day
right of rescission on refinancing of owner occupied primary residences.
UCC-1
Financing Statement required by the lender when you
are financing a Co-op. It is filed in the county in which the co-op is located.
Underwriter
A professional who approves or denies a loan to a
potential homebuyer based on the homebuyers credit history, employment history, assets,
debts, property appraisal and other factors such as loan guidelines.
Underwriting
In mortgage lending, the process of determining the
risks involved in a particular loan and establishing suitable terms and conditions for the
loan.
Usury
Interest charged in excess of the legal rate
established by law.
Uniform Settlement Statement
A standard document prescribed by the Real Estate
Settlement Procedures Act disclosing all costs paid in connection with the settlement of a
real estate transaction. Also called a HUD-1.
Variable Rate
Interest rate that changes periodically in relation
to an index.
Verification of Deposit (VOD)
Document signed by the borrower's bank or other
financial institution verifying the borrower's account balance and history.
Verification of Employment (VOE)
Document signed by the borrower's employer
verifying the borrower's position and salary.
Veterans Administration (VA)
The federal agencies responsible for the VA loan
guarantee program as well as other services for eligible veterans. In general, qualified
veterans can apply for home loans with no down payment and a mortgage insurance premium of
1 percent of the loan amount.
Waiver
Voluntary relinquishment or surrender of some right
or privilege.
Walk-through
An inspection of a property by the prospective
buyer prior to closing on a mortgage.
Warranty Deed
A document protecting a homebuyer against any and
all claims to the property.
Wraparound Mortgage
A junior mortgage taken back by the seller for the
amount of the properties purchase price less the buyer's down payment. The existing loan
is retained and combined with a new, larger loan and the interest rate is set somewhere
between the old rate and the current market rate. A typical wraparound is an interest only
loan with a 5-year balloon or less.
Zoning
The ability of local governments to specify the use
of property in order to control development within designated areas of land. For example,
some areas of a neighborhood may be designated only for residential use and others for
commercial use such as stores, gas stations, etc.
